Bodco Bldg. Corp. v. Arizona State Tax Commission

• Decision Date: 15 June 1967
• Docket Number: CA-CIV,No. 1,1
• Citation: 5 Ariz.App. 589,429 P.2d 476
• Parties: The BODCO BUILDING CORPORATION, an Arizona corporation, Appellant, v. ARIZONA STATE TAX COMMISSION, a public agency of the State of Arizona, and William E. Stanford, John M. Hazelett, and Waldo DeWitt, as members of and constituting said Arizona State Tax Commission, Appellees. 350.
• Court: Arizona Court of Appeals

Page 476

429 P.2d 476

5 Ariz.App. 589

The BODCO BUILDING CORPORATION, an Arizona corporation, Appellant, v. ARIZONA STATE TAX COMMISSION, a public agency of the State of Arizona, and William E. Stanford, John M. Hazelett, and Waldo DeWitt, as members of and constituting said Arizona State Tax Commission, Appellees.

No. 1 CA-CIV 350.

Court of Appeals of Arizona.

June 15, 1967.

Ryley, Carlock & Ralston, by Joseph P. Ralston, Phoenix, for appellant.

Darrell F. Smith, Atty. Gen., William T. Boutell, Jr., Asst. Atty. Gen., for appellees.

DONOFRIO, Judge.

This action was argued at the same time and involves some of the questions decided in Arizona State Tax Commission v. First Bank Building Corporation (decided this date), 5 Ariz.App. 594, 429 P.2d 481, and concerns the validity of transaction and educational excise taxes assessed by the appellee, Arizona State Tax Commission, hereafter called the Commission, upon rents paid by The Arizona Bank, an Arizona corporation, to Bodco Building Corporation, an Arizona corporation, appellant herein and plaintiff below, hereafter called Bodco, or plaintiff. At the outset it is to be noted that First Bank Building Corporation, supra, is to be distinguished from the instant case in that the bank involved therein was a national bank, whereas this case involves a state bank.

Plaintiff brought this action against the Commission for recovery of $70,438.45 in taxes paid as transaction privilege taxes under A.R.S. § 42--1301 et seq. This sum represents taxes paid on income from the rental of premises leased or subleased by plaintiff to The Arizona Bank. Plaintiff appeals from a summary judgment in favor of the Commission. The cause was submitted to the trial court on a stipulation of facts and the deposition of the senior vice-president of The Arizona Bank. The facts are undisputed, therefore this Court is free to substitute its analysis of the record for the analysis of the trial court. First Bank Building, supra. The facts to which the parties have stipulated are as follows:

Plaintiff, The Bodco Building Corporation, an Arizona corporation, is a wholly owned subsidiary of The Arizona Bank, an Arizona corporation, and a member of the state banking system, operating under the authority of the Superintendent of Banks of the State of Arizona. Bodco was organized to own or lease buildings which would be leased or subleased, all or in part, to The Arizona Bank to be used by it for banking facilities for its some forty branches. In many instances it leases the land, constructs a building and subleases it to the bank at a rental generally based upon the cost of improvements plus six percent. Most of the structures are free-standing, single-purpose, single-story buildings, occupied entirely by the branch bank. Four of these structures have some additional space for future bank expansion, which at the present time is leased to a third person. Four of the branch banks are housed in structures which are part of a shopping center complex, leased by Bodco from the owner and subleased to the bank. Two of the buildings owned by Bodco, the home office in Phoenix and the downtown office in Tucson, are high rise buildings containing several floors. In the Phoenix home office building the basement contains safe deposit vaults and bookkeeping functions. The ground floor is the main banking room; the second floor is the trust department; the third floor contains various administrative offices as well as the Board of Directors' room; and the tenth floor is the employees' cafeteria and officers' dining room. The remaining floors in the high rise buildings are leased by Bodco to attorneys, accountants, and for other professional office uses. The Bisbee office is an office building with the banking facilities on the first floor, and a few miscellaneous rentals on the second floor. Taxes imposed on the rentals received by Bodco from nonbank occupied space in these three buildings is not included in this litigation. Such taxes have been paid without protest and no refund is sought by plaintiff.

The Commission has imposed transaction privilege taxes based on the income of Bodco from leases or subleases of all banking space to its parent organization, The Arizona Bank. It is the amount of such taxes, together with a small amount of income received from the rental of extra space in the small single-purpose buildings, which represent the taxes paid under protest and the taxes previously paid without protest, but which are included in the audit, upon which a refund is now claimed.

We first deal with the payment of taxes by plaintiff which had not been paid under protest. Bodco had paid certain of the taxes claimed invalid without making a protest as provided in A.R.S. § 42--1339. It seeks to recover this sum under the theory that it had requested an audit covering payment of taxes for the previous three years at which time it advanced the contention that the gross income from the rental of various bank premises did not constitute gross income from office buildings as that term is used in A.R.S. § 42--1314 and therefore is entitled to refund by virtue of A.R.S. § 42--1326.

We would hold that Bodco, having failed to follow the statutory requirements of § 42--1339 which are exclusive insofar as the recovery of taxes herein are concerned, cannot recover under § 42--1326 which is inapplicable.

The predecessor of § 42--1326 (A.C.A. 1939 § 73--1327), was in the statute books when Smotkin v. Peterson, 73 Ariz. 1, 236 P.2d 743 (1951) was decided. The Supreme Court therein stated that where the taxing official has a semblance of authority to collect a tax, the payment under protest provisions of the statute must be followed. To quote the Court:

'* * * Section 73--1318 (A.R.S. § 42--1338--1339) of the Excise Revenue Act expressly provides that in cases such as this the taxpayer shall pay the tax under protest and sue for its recovery. This remedy is exclusive.'

This position was reiterated by the Supreme Court in Southern Pacific Company v. Cochise County, 92 Ariz. 395, 377 P.2d 770 (1963):

'The rule at the common law was that taxes voluntarily paid could not be recovered, (citation omitted) * * *. Public policy discourages suits for the refund of taxes even where illegally collected. (citation omitted) * * * and if the taxpayer desires to raise a question as to his taxes he is compelled to scrupulously follow the statutory procedures, Smotkin v. Peterson, 73 Ariz. 1, 236 P.2d 743, for the refund of taxes paid is by virtue of governmental grace rather than by reason of any legal right which the taxpayer has to such a refund. State v. Airesearch Manufacturing Co., 68 Ariz. 342, 206 P.2d 562.'

See also City of Phoenix v. Phoenix Newspapers, Inc., 100 Ariz. 189, 412 P.2d 693 (1966) which passed on a similar provision with reference to the City of Phoenix Privilege License Tax.

We next turn to the validity of the tax assessments. The applicable portion of the act upon which the Commission bases its tax is found in the following portion of A.R.S. § 42--1314:

'The tax imposed by subsection A of § 42--1309 shall be levied and collected at an amount equal to two per cent of the gross proceeds of sales or gross income from the business upon...